IRA QUICK FACTS
Traditional IRA vs Roth IRA
TRADITIONAL IRA
- Invest Traditional IRA money before paying taxes
- Withdrawals are required by age 73
- Pay taxes when you withdraw money
ROTH IRA
- Invest Roth IRA money after paying taxes
- Withdrawals are never required
- Withdraw money tax free
- Access Roth contributions at any time, but Roth needs to be in place for 5 years in order to withdraw gains tax free
- Roth IRA balances do not count in the calculation for taxing Social Security benefits, or in the calculation for the tax on investment income
Converting your IRA to a Roth IRA at a Discount
Roth IRA's are preferred due to the potential of tax-free growth, but there are limits to high income earners on contributing to a Roth. Due to this contribution limit, many want to convert some of their traditional IRA funds to a Roth IRA to maximize their Roth IRA benefits. This is commonly called a "back-door Roth IRA".
High Taxes
Investors having to pay current income taxes on the converted amount from a traditional IRA to a Roth IRA as the conversion is taxed as current income.
Re-Invest the Funds
Invest your traditional IRA into a ground-up construction project and convert at a discounted value due to an interim valuation.
New Valuation
Upon starting construction a new valuation is issued with a reduced value, allowing for a Roth conversion at a discount. To visualize this, some ground-up real estate projects have what is called a "J" curve when it comes to their valuation. See the chart below.
Example of a ROTH Conversion Through a BV Construction Project
Investing in a ground-up construction project through a traditional IRA enables an investor to convert to a Roth at a discount as the valuation could be devalued by approximately 30% during construction.
This devaluation can be caused by factors such as illiquidity, lack of transferability and initial deal costs among other factors.
Upon the sale, the value increases due to the sales price which is designed to be higher than the overall construction cost and creates a profit for investors.
The graph above is purely an example and not a projection of an actual return.
TRADITIONAL IRA TO ROTH IRA – HOW DOES IT WORK?
Below are the the steps to completing the Roth IRA conversion.
Step 1:
INVEST
An investor uses their traditional IRA to invest in this type of project.
Step 2:
CONSTRUCTION
Construction starts and a third party prepares a valuation report assessing the reduction in value.
Step 3:
VALUATION
The IRA custodian receives the third-party report and reduces the investor's value of their IRA.
Step 4:
CONVERSION
The investor initiates a Traditional IRA to Roth IRA conversion at their custodian at the reduced valuation.
Step 5: EXIT
The Construction of the development project is complete; the project is leased and reaches stabilization. Typically, Sponsors anticipate that at this stage of a project the valuation will be higher than the initial capital invested into the project. The project is then sold, and distributions are made to investors back to their Roth IRA.
*Some real estate projects create UBIT so check with your Sponsor or tax professional on how that might affect you.
Learn More
our track record
Bridgeview Real Estate
Bridgeview has an established track record of developing over 1,000 multifamily units and renovating an additional 1,000 units. Combined, Bridgeview’s principals have been involved in the development, acquisition, renovation, and disposition of almost 9,000 multifamily units and 1 million square feet of commercial space as well as other real estate transactions in all, totaling more than $3 billion.
14 ASSETS
Fully Realized
+420M
Total Capitalization
34.7%*
Average Investor IRR
2.91x*
Average Investor Multiple
2,385
Units Sold
1,323
Units Developed
2,464
Units in Pipeline
36 Mo.
Average Hold Period
*Past performance is not indicative of future results. There is no guarantee that the Sponsor will be able to execute similar investments and investors risk the loss of their entire investment. Data as of October 2024.
